Tough Times for Hedge Funds and Private Equity, EU Still Divided

Hedge funds and private equity firms face profit crunch, EU states still split on regulations in Europe, aimed at enforcing restrictions on the industry.

(March 2, 2010) – Hedge funds and private equity companies face a difficult road ahead with higher costs and lower profits, Reuters reported.

“Investor expectations of governance have increased dramatically…It’s quite hard for single-strategy boutiques to meet those expectations,” Charles Kirwan-Taylor, chief investment officer of RAB Capital told the Reuters Hedge Fund and Private Equity Summit in London.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

While small firms are up against cost pressure to slash fees and satisfy demand for managed accounts, private equity firms are unable to sell as many companies and the $1.6 trillion hedge fund industry has found its client assets considerably reduced.

According to a survey earlier this year from Preqin, a London-based data provider, $246 billion was raised by 482 funds last year, down 61% from 2008 and the lowest since 2004.”We are seeing a trend away from the bigger mega-buyout funds toward more of a focus on smaller mid-market and regionally focused vehicles,” the report said. The average period of time to raise a fund is now more than 18 months, when it previously stood at just a year.

And despite last week’s rumors that members of the European Union were nearing a compromise on hedge fund and private equity rules, members continue to remain divided about the scope of the regulation, the use of depositaries and rules for funds based outside the EU. The divisions reflect “deep ideological divisions about regulating financial markets in the wake of the economic downturn,” the Wall Street Journal reported.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(March 2, 2010) – By the end of 2012, sovereign wealth fund assets globally are expected to increase 44% to $5.5 trillion, according to a report by the International Financial Services London (IFSL), with an anticipated trend to oversees investments.

SWFs invested $10 billion during the first half of 2009, the slowest start to a year since 2005. But investments picked up in the second half of last year, with much of the invested $50 billion allocated to markets in Europe and North America.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

IFSL, a UK-based financial-services industry organization, estimated that as of the year-end 2009, SWFs funded primarily by commodities exports, such as oil, held about $2.5 trillion in assets, while non-commodity SWFs, funded by manufacturing, public savings or fiscal surplus for example, totaled $1.3 trillion.

“Non-commodity funds are capturing an increasing share of SWFs’ assets, a trend that is likely to continue in the coming years,” the report stated.

Since 2007, IFSL’s release said, the profile of SWFs has risen considerably, as the credit crisis emphasized the increasing role of investment by foreign governments.

About 40% of SWF assets came from Asian and Middle Eastern countries, with Europe accounting for most of the remaining funds. Approximately one-fourth of the SWF global total came from China, which boasts the largest individual country share. Other influential countries with the greatest percentages of the world’s SWF assets include the United Arab Emirates (18%) and Norway (12%).

In recent news, Norway’s Ministry of Finance recently said that its Government Pension Fund-Global, with $424 billion in assets under management, could soon be invested in global real estate.

“Real estate is the largest asset class after shares and bonds, and these investments fit well with the fund’s investment profile,” said minister of finance, Sigbjørn Johnsen, in a statement. “In order to reduce risk, we have made it a requirement that the investments will be spread over time, over countries and over types of real estate. Investments will principally be made in well-developed markets and within traditional types of real estate. Even so, we must be prepared for real estate prices to fluctuate a good deal.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742